Correlation Between Permanent TSB and China Merchants

Can any of the company-specific risk be diversified away by investing in both Permanent TSB and China Merchants at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Permanent TSB and China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Permanent TSB Group and China Merchants Bank, you can compare the effects of market volatilities on Permanent TSB and China Merchants and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Permanent TSB with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Permanent TSB and China Merchants.

Diversification Opportunities for Permanent TSB and China Merchants

0.35

Correlation Coefficient

Permanent TSB  China Merchants

Weak diversification

The 3 months correlation between Permanent and China is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Permanent TSB Group and China Merchants Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Bank and Permanent TSB is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Permanent TSB Group are associated (or correlated) with China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Bank has no effect on the direction of Permanent TSB i.e., Permanent TSB and China Merchants go up and down completely randomly.

Pair Corralation between Permanent TSB and China Merchants

Assuming the 90 days horizon Permanent TSB Group is expected to under-perform the China Merchants. But the pink sheet apears to be less risky and, when comparing its historical volatility, Permanent TSB Group is 3.14 times less risky than China Merchants. The pink sheet trades about -0.05 of its potential returns per unit of risk. The China Merchants Bank is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  424.00  in China Merchants Bank on September 5, 2024 and sell it today you would earn a total of  46.00  from holding China Merchants Bank or generate 10.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Permanent TSB Group  vs.  China Merchants Bank

Permanent TSB Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Permanent TSB Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

China Merchants Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Permanent TSB and China Merchants

The main advantage of trading using opposite Permanent TSB and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Permanent TSB position performs unexpectedly, China Merchants can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in China Merchants will offset losses from the drop in China Merchants' long position.

The idea behind Permanent TSB Group and China Merchants Bank pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.